Securities analysts have a positive view of the Thai stock market after the general election due to growing earnings, though the world economy and domestic political situation remain influential factors in the latter half of the year.
Both local and overseas investors need to closely monitor global economic dynamics as they affect each country’s economy. In Thailand, the general election scheduled for July 3 poses a risk to Thailand’s political and economic stability for overseas investors.
Recently, Morgan Stanley, Goldman Sachs and Credit Suisse launched reports, reducing weightings on the Thai stock market and prompting overseas investors to go on a continuous selling spree from June 2 to 9. Overseas investors were net sellers of Thai stocks worth Bt18.6 billion.
Kavee Chukitkasem, head of research at Kasikorn Securities, said there was only a short-term political issue in Thailand regardless of whether Pheu Thai or the Democrats won the election, though risks would differ. If Pheu Thai wins, the stock market could react negatively due to the amnesty issue that could cause political unrest.
But if the Democrats win a majority and have Bhum Jai Thai join a coalition government, it could cause only short-term positive sentiment on the stock market and political unrest could arise. However, unrest is expected to be less severe than last year’s violence.
After the election, the stock market could be in swing mode but continue to rise in the medium term as the new government moves on with economic stimulus, Kavee said.
The Thai economy is likely to continue its expansion this year and if the world economy makes a recovery, it will become a positive factor for the Thai economy and Thai stock market.
An analyst from Asia Plus Securities said the Stock Exchange of Thailand (SET) Index had dropped about 10 per cent since its peak at 1,113 points on April 21, the second-largest fall of all Asian countries. China saw the largest loss of 10.7 per cent.
Stock market indices in other countries like Hong Kong, India and South Korea fell 7.3, 6.5 and 5.3 per cent respectively, probably indicating concerns over the world economic slowdown and foreigners’ heavy selling sprees in Asia.
In a period of one month, foreign investors were net sellers of stocks worth US$8.5 billion (Bt255 billion) in India, Indonesia, the Philippines, South Korea, Taiwan, Thailand and Vietnam.
In Thailand, overseas investors were net sellers of Thai stocks worth Bt34.6 billion, equivalent to 53.02 per cent of net buying of Bt67.3 billion from February 14 to May 3.
Tientip Subhanij, head of the Capital Markets Research Institute at the SET, said foreign selling was due to uncertainties after the election and accelerating inflation. The Thai stock market has become less attractive than regional peers as the country’s economic development is not well planned.
“In the short term, Thai stocks are confronting a lot of uncertainties compared to other stock markets in Asia. But when the election passes or in the third quarter, [the Thai stock market] should return to normal, as in the past politics has not had any significant impact on the market. As seen during the violence in May last year, the Thai stock market dropped first and then rose afterwards,” Tientip said. Thailand’s listed corporate earnings growth is projected to reach 20 per cent this year.
According to Morgan Stanley, Thailand’s equity market seems to be pricing in a period of political stability and continued earnings growth momentum. A period of stable and strong government after the elections remains a risk to the brokerage.
Thailand has partially re-rated but has weaker growth, higher inflation and heavy foreign investor positioning, said Goldman Sachs Group. “We believe election uncertainty, high oil sensitivity and a lack of ‘top-down direction’ make this unattractive from a risk/reward perspective.”
Amid accelerating inflation, an interest-rate up-trend, higher valuations and the upcoming elections, investors should turn more neutral on Thai stocks, said Credit Suisse Group AG.
“We see strong evidence that political instability has hurt economic growth and stock multiples significantly. We estimate that instability has cost Thailand 1-2 percentage points of GDP [gross domestic product] growth annually,” Credit Suisse said in its report.
The brokerage has reduced weightings to more neutral levels in banks, property and tourism-related stocks, saying that these companies are the most sensitive to political concerns. It has raised its weightings on petrochemicals, energy, utilities, retailer CP All and Siam Cement.
Although banks look attractively valued, they are the most widely held stocks by foreigners and would suffer if overseas investors decided to cut Thailand weightings, the report said.
Source: The Nation